A Philadelphia registered investment adviser agreed to pay nearly $11 million for misappropriating funds from clients who were told their money would support socially conscious investments, while it really went to pay the adviser's debts and for other purposes, according to federal regulators.
A Philadelphia registered investment adviser agreed to pay nearly $11 million for misappropriating funds from clients who were told their money would support socially conscious investments, while it really went to pay the adviser's debts and for other purposes, according to federal regulators.
From 2002 through October 2010, Otto Sam Folin and his RIA firm, Benchmark Asset Managers LLC, misrepresented how $8.7 million that he took in from advisory clients, friends and family would be spent. Often he sold them interests in Safe Haven Investment Portfolios LLC, a group of pooled investment vehicles Benchmark created, managed and advised, according to the Securities and Exchange Commission complaint. He also sold Benchmark notes and notes in Harvest Managers LLC, which acted as a parent to Benchmark.
Among other uses, Mr. Folin spent the funds to pay back some investors from a failed business venture from 1999 for which he raised money from religious organizations and issued promissory notes representing investments and microfinance loans to South African causes, the SEC said. The money also was used to pay other investors, to buy homes and cover operating expenses.
For instance, in June 2008, Mr. Folin convinced a Benchmark client to liquidate $350,000 of his retirement account that was invested in conservative bonds and buy into one of the Safe Haven portfolios. Later that year, Benchmark loaned $400,000 to Harvest, which then paid it to Mr. Folin, who used it to buy a Philadelphia condominium in August 2008, according to the complaint.
In addition, over several years, Safe Haven paid $1.7 million in “development costs” to Benchmark and Harvest, the SEC said. Safe Haven also “loaned” Benchmark and Harvest money that was used to buy a home for a Benchmark employee and used for a wedding gift for a friend, the SEC said. The loans were not repaid.
Mr. Folin also promised to generate guaranteed above market returns and failing to disclose Benchmark's “continually precarious financial positions,” according to the complaint.
Mr. Folin's attorney, Richard Levan of an eponymous firm in Philadelphia, did not return an email seeking comment and couldn't be reached by phone.
In addition to agreeing to pay $8.7 million and $1.45 million in interest, he will pay a $725,000 penalty, according to the settlement filed July 28 in U.S. District Court in Philadelphia. The SEC also revoked Benchmark's investment adviser registration.
Under the settlement, Mr. Folin neither admitted nor denied the SEC allegations.
